The risks of buying “off the plan” properties
Buying properties “off the plans” have become increasingly popular over the years. When you buy a property “off the plans,” this means you purchase the property before it is completed. Purchasers usually have to wait at least 1 year before construction is completed. Although there are some perceived benefits to buying “off the plan,” such as paying a lower purchase price and living in a brand new home, there are also many risks.
One of the main risk of buying “off the plans” is the potential delays involved in building the property. Extensive delays means the purchaser has lost numerous opportunities to buy other properties on the market whilst waiting for construction to be completed.
Further, if the market value of the property has increased during the waiting period, then the vendor may be tempted to find an excuse the cancel the agreement so they can re-sell the property on the open market for a higher price.
“Off the plans” sale and purchase agreements often included a “sunset clause,” which allows one or both parties to cancel the contract if construction is not finished by a certain date. Although this may seem like a helpful clause on its face, the vendor may use it to their advantage. For instance, if the property market rose during the building period, the vendor may delay construction to invoke the sunset clause to cancel the agreement so the property can be sold again at a higher price.
Another risk associated with buying “off the plan” is that the finished product might not be what you expected. “Off the plans” agreements often contains clauses which give the vendor the right to change the building specifications in any way they wish. So it is possible you might end up getting a solid wall instead of full-length windows.
All of these risks are dependent on the specific terms of your individual contract. Therefore, it is important to ask your lawyer to advise you on the terms of any “off the plans” contract you intend to enter into.
If you have any questions about New Zealand property law, speak to us at Capstone Law, and we will be happy to assist you.
Partner & CEO
Kenneth is the founding partner of Capstone Law. Kenneth has a MPhil from the University of Cambridge, and he was also awarded the prestigious Dean’s Academic Achievement Award for graduating from the University of Auckland law school in the top 5% of his class. Kenneth has worked at some of the best law firms in the country before starting Capstone Law.
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